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I'm curious about the strategies people use for ETF assessment & valuation.

It seems to me that the methods for valuing stocks might not be entirely appropriate for ETFs, given the underlying differences between the two. Is this concern warranted?

What criteria do you consider when selecting between competing ETFs (i.e., ETFs drawn from the same or considerably similar sectors), and what valuation methods do you use?
 

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I think people first look at what goals they are trying to accomplish when they purchase an ETF. Will it satisfy a particular portion of your asset allocation strategy? Does it offer enough idversification ( see my comments HERE). Do you want it in Canadian dollars or foreign currency?

Once you've looked at that I think it comes down too cost between similar etfs. Generally you want the lowest MER but it might be worth to pay a slight premium for a more established etf. Also you'll have to decide if you want an etf which does hedging to limit currency risk. This usually makes the MER a little more expensive and doesn't track their particular index as well as a non-hedged etf.

Also always understand how the etf implements their strategies and the risks associated with them. Some etfs are highly leveraged which can magnify returns but can also magnify your losses. Others rely on complicated futures strategies.

You have to ask yourself "If I had the opportunity to personally invest using leverage or invest in futures contracts directly would I do it?" and your answer is no then to shouldn't invest in etfs that implement the same strategies.

This is just my take away from my short experience with ETFs :)
 

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ETF's are valued very similar to how Mutual Funds are valued. The ETF in itself has no value, it's value is derived from the underlying holdings, it's just a basket of stocks and the valuation is based on that. Generally ETF's are suppose to be always valued at fair market value since they only track those investments, but since they are traded as stocks there usually is a slight difference between the fair value of the ETF and market value.
 
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